double-entry bookkeeping

(noun)

A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.

Examples of double-entry bookkeeping in the following topics:

  • Inputs to Accounting

    • Inputs into accounting include journal entries, the bookkeeping process, and the general ledger.
    • In accounting, the two bookkeeping methods are the single-entry and double-entry bookkeeping systems.
    • For modern day purposes, it is most important to know the double-entry bookkeeping system.
    • The 'basic accounting equation' is the foundation for the double-entry bookkeeping system.
    • There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system.
  • Defining Accounting

    • One important breakthrough took place around that time: the introduction of double-entry bookkeeping, which is defined as any bookkeeping system in which there was a debit and credit entry for each transaction, or for which the majority of transactions were intended to be of this form.
    • The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300.
    • The oldest discovered record of a complete double-entry system is the Messari (Italian: "Treasurer's") accounts of the city of Genoa in 1340.
    • Therefore, they enjoy general recognition as a double-entry system.
    • Although Luca Pacioli did not invent double-entry bookkeeping, his 27-page treatise on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today.
  • Debits and Credits

    • Credit and debit are the two fundamental aspects of every financial transaction in the double-entry bookkeeping system.
    • Debits and credits are at the heart of the double-entry bookkeeping system that has been the foundation stone on which the financial world's accounting system has been built for well over 500 years.
    • Debits and credits serve as the two balancing aspects of every financial transaction in double-entry bookkeeping.
    • Each transaction (let's say $100) is recorded by a debit entry of $100 in one account, and a credit entry of $100 in another account.
  • Types of Transactions

    • In double-entry bookkeeping, a sale of merchandise is recorded in the general journal as a debit to cash or accounts receivable and a credit to the sales account.
    • Fees for services are recorded separately from sales of merchandise, but the bookkeeping transactions for recording sales of services are similar to those for recording sales of tangible goods .
  • Fundamental Accounting Equation

    • A double-entry bookkeeping system involves two different "columns;" debits on the left, credits on the right.
    • To record this transaction in his personal ledger, the person would make the following journal entry.
  • The Trial Balance

    • The trial balance is usually prepared by a bookkeeper or accountant.
    • The bookkeeper/accountant used journals to record business transactions.
    • The journal entries were then posted to the general ledger.
    • The trial balance is a part of the double-entry bookkeeping system and uses the classic 'T' account format for presenting values.
    • When the error is found, a correcting entry must be made.
  • Journalizing

    • How would we record journal entries for each transaction?
    • The general journal is where double entry bookkeeping entries are recorded by debiting one or more accounts and crediting another one or more accounts with the same total amount.
    • Each journal entry must have a debit and a credit.
    • How would we record journal entries for each transaction?
    • (these can be combined into a single entry if you choose. )
  • Reversing Entries

    • Reversing entries are journal entries made at the beginning of each accounting period.
    • Reversing entries help prevent accountants and bookkeepers from double recording revenues or expenses.
    • Reversing entries are most often used with accrual-type adjusting entries.
    • This adjusting entry records months A's portion of the interest expense with a journal entry that debits interest expense and credits interest payable.
    • The entry credits interest expense and debits interest payable.
  • Posting

    • In accounting, each journal entry is like a set of instructions.
    • Since accountants and bookkeepers often need to trace the origin of a ledger entry, they use cross-indexing.
    • In cross-indexing a notation is made for each entry that indicates which general or special journal account the general ledger entry came from.
    • This practice makes it easy to trace an entry back to the original transaction.
    • The general ledger contains all entries from both the General Journal and the Special Journals.
  • Activities to Manage Receivables

    • To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account.
    • When the customer pays off their accounts, one debits cash and credits the receivable in the journal entry.
    • It is simpler than the allowance method in that it allows for one simple entry to reduce accounts receivable to its net realizable value.
    • The entry would consist of debiting a bad debt expense account and crediting the respective accounts receivable in the sales ledger.
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